Friday, July 15, 2011

Public Transport System Structurally Flawed

I gave up on our public transport system two years ago for various reasons. I choose to drive. This means I have to cut down a lot of other expenses. (Wealth Watchers made this decision easier for me.) When I don't drive, I walk (or fly). When I do take public transport in exceptional situations, I come out reassured about the choice I made.

I was in the Republic of Singapore Navy when Singapore's current Transport Minister Lui Tuck Yew earned his first star as a commander. He was among the friendlier commanders who you knew, beneath his poetic charm, had those balls of steel that would give him the resolve to die defending his ship.

Lui seems to be showing signs of such resolve with his current unwavering position on the structure of Singapore's public transport system (see more below). He is on a collision course with opposition party politicians. He is not going to have an easy ride, since this is something which even grassroots leaders, like my friend below, find unpalatable.

While I cannot fault the statement, perhaps it might be instructive for us to consider this statement in the context of the nature of our public transport market.

SBS and SMRT are the two dominant players in our public transport sector. They presumably hold substantial market shares. Industries containing firms with substantial market shares are called “concentrated industries” because their market share is in the hands of few firms (in this case, SBS and SMRT).

Further, demand for public transport can best be described as inelastic, as many Singaporeans rely on these services for their daily needs. Who else can they turn to other than SMRT or SBS, unless they own a car or choose a taxi company that is not owned by SMRT or SBS?

Under these conditions, the profit maximising firm will constantly strive to raise prices. Demand will not be affected because it is inelastic. And because SBS and SMRT operate as a duopoly in this market, and I assume their market share is largely equal and stable, there is no real incentive for them to drop price to fight to gain market share, and thus, the only logical move would be to keep the status quo, and better still, request for price rises together. (In such a situation, it makes sense for one to follow the move of the other, why rock the boat?)

In such a duopolistic environment, I doubt there is a huge incentive for either SBS or SMRT to compete, which makes our public transport sector less competitive. Worse, such environment may stifle any need to be innovative or responsive to customers.

We are already seeing signs of such lethargy in both companies. Today, we see people packed to the brim in trains. People are unable to board buses because they are too crowded.

It is thus no surprise to me (and most Singaporeans I assume), that the “experience” of travelling in our public transport has been less than satisfactory.

I am not optimistic that the profit incentive will drive efficiency and productivity improvements designed to serve commuters better.

Great Expectations

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4 comments:

Anonymous
said...

“it is the profit incentive of commercial enterprises that spurs efficiency and productivity improvements”

If this statement is true, then logically, it follows that the civil service and all govt related departments are probably the most inefficient organisations in Singapore. Are the taxpayers getting the monies worth ?

It's not even a duopoly. Given the little overlap in routes, the 2 operators are geographic monopolies. When it comes to fare increases, they collude. Private monopolies offering public services don't give a shit about public duty. That's the inherent flaw in govt policy, quite apart from the moot question of how efficient the operators have turned out to be, over the years. The proof is in the eating. Just ask the public who have no choice but to use their services. Surely the groundswell tells you something is fundamentally wrong?

Competition is what drives efficiency. Let private operators run bus routes and see if SBS wants to increase its prices. The government has no right to use the profit incentive argument when its basically running a monopoly.

All talk and no action. I hear complaints - high cost of HDB apartment, transport fares and medical costs etc, etc, etc .... all the time.

There is a simple solution to this.Just vote in a another two dozen of credible opposition candidates into parliament will do the trick. You will see the cabinet ministers and the civil service bucking up immediately. Murky policies will get cleaner and arrogance gone.

Sound like a rash action but is better than whining unless you still enjoy it.

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Nothing in this blog is meant to substitute professional legal, financial or other advice. Please seek such advice independently! Dharmendra Yadav is presently a corporate counsel in a financial institution. Contact him by e-mail dpyadav {[at]} yahoo.com